“RV ownership is a lifestyle change,” says Justin Haley, senior vice president and chief operating officer at Medallion Bank, a Utah-based industrial bank specializing in non-prime recreation loans. Purchasing one often leads to years of monthly payments, maintenance costs and other travel-related expenses.
The key to RV financing and getting the most out of it lies in making sure the purchase fits comfortably into your routine and budget.
Steer clear of common slip-ups when purchasing an RV by avoiding these common mistakes:
1. Taking the price at face value
“Many RVs are inflated in price by as much as 30% to 35%,” notes Michelle Schroeder-Gardner, founder of MakingSenseofCents.com, who purchased a Class C RV in July 2015.
RV dealerships generally expect you to haggle. “We negotiated on the price of our RV and were able to get almost $30,000 off the price of it, without much work,” says Schroeder-Gardner. “All we had to do was ask, ‘What’s the lowest you can do?’ and we received a great price.”
In addition to dealerships, sites such as RVs.com, RVT.com and RVTrader.com can give you an idea of RV prices and deals. Check these and other sites when you’re considering looking for RV loan rates. RV financing is a major investment.
2. Not checking your credit score
“Just like when applying for a car loan, consumers should first check their credit rating,” says Jordan Perch, automotive expert at DMV.com. As it just so happens, we can get you a free annual credit report at myBankrate.
In general, 640 and over is considered a good credit score. With a lower score, such as 600 or even around 550, you still may qualify for a personal loan, but you’ll pay more overall.
“Interest rates may vary between states, but borrowers with bad credit can expect to get rates of up to 24%, which is significantly higher than the rates offered to those with scores of at least 640,” Perch says.
Additionally, you could look at RV financing as similar to financing any other vehicle. The main difference, however, is that some RV loans may offer unique options you won’t get with typical auto loans. As an example, you could claim an RV as a primary or secondary residence. This could actually have a positive impact on your federal taxes as a deduction.
According to the IRS, if a vehicle contains areas for sleeping, cooking, and toilet facilities, it can be declared a residence. And as long as the RV is used as security for the loan used to buy it, the mortgage interest could be deducted from your taxes as a homeowner.
Keep in mind that when an RV becomes not just a vehicle but a property on wheels, it may be in need of specialized insurance.
3. Overestimating what you can afford
“We encourage customers to include the overall cost of ownership. It’s not just the monthly payment,” Haley says.
Since RVs tend to cost much more than regular passengers vehicles, an RV loan can look more like a mortgage than a typical car loan.
You can use the Bankrate personal loan calculator as an RV loan calculator to estimate monthly payments and interest on an RV loan, along with an amortization schedule. This will help you immensely when you’re looking into RV financing.
4. Grabbing the first loan available
As with anything else requiring a loan, you don’t want to settle for the first offer you come across. This is also true for all the various RV loans. You also don’t want to assume that RV loan rates are equivalent to auto loans in size or duration.
The same can also be said for insuring your RV:
“While some of the coverage an RV policy offers is similar to regular car insurance to cover accidents, you also need specific coverage that’s like property insurance because you essentially live in the vehicle when you’re using it,” says Gregory J. Blanchard, an associate vice president with Nationwide insurance.
Many RV loans have a 20-year term, which can make an RV seem much more affordable than it actually is. However, much like any other kind of loan, you don’t want to take the first offer you see when financing an RV.
Whether you’re looking for RV loan rates or trying to insure your RV, be sure to research how auto loans differ from unsecured RV loans before making a decision.
5. Owing more than RV’s future sale price
A new RV can depreciate as much as 30% the moment it’s driven off the dealership’s lot.
For this reason, there is a high risk of getting upside down on an RV loan, which means more is owed on the RV loan than the vehicle could bring in if you sold it, says Perch.
To avoid becoming upside down, make a large down payment, if possible. That way, you’ll owe as little as possible in the years to come, should you decide to sell it or trade it in.
Another strategy is to start small and work up to a larger RV, Medallion Bank’s Hannay says. “RVs can range from $10,000 to hundreds of thousands of dollars,” he says.
If you initially purchase a lower-priced model you can easily pay off, you’ll be able to trade it in for an improved model later.
And remember that RV financing is not as simple as buying a car, nor are RV loan rates the same as those of auto loans. Buying an RV can be a complex process, but it can also be worth it. By avoiding these 5 common mistakes, you’ll be able to focus on wherever the open road takes you and less on your finances.